Policy

The Group of 100 and International Harmonisation

Background

The Group of 100 (G100) is an organisation of senior finance and accounting executives which represents the interests of large companies with particular emphasis on financial reporting. The G100 has a loose association with the BCA and in recent years it has dealt with financial reporting issues in consultation with the BCA.

International Accounting Standards (IAS) are issued by the International Accounting Standards Committee (IASC). The IASC has a program to complete a core set of IASs for consideration by the International Organisation of Securities Commissions (IOSCO) for endorsement for cross-border capital raisings and listings.

1. What is the G100’s Objective?

The objective of the Group of 100 is to achieve cross-border capital raisings and international listings without the need to prepare reconciliations of financial statements. As such, harmonisation with IASC standards (or other set of internationally accepted standards) is not an end in itself but a means of achieving the overall objective.

The G100 recognises that the USA is the major capital market and, as such, the principal focus on the implementation of the policy is achieving harmonisation with US requirements through the IASC/IOSCO processes.

The harmonisation policy is a response to the increasing globalisation of business.

2. What is the Policy?

The Group of 100 believes that ultimately there should be a global set of accounting standards. In the meantime it supports the principle of international harmonisation.

The Group of 100’s policy on international harmonisation is:

Compliance with Australian Accounting standards should result in automatic compliance with International Accounting Standards issued by the IASC.

An issue in this regard is what constitutes global acceptance and acceptance in the major international capital markets. Fundamental to the application of this policy is the endorsement of a comprehensive set of IASC standards by IOSCO for cross-border capital raisings and the resultant acceptance of those standards in international capital markets, particularly the USA.

In the Australian context the requirement that the Financial Reporting Council report to the Treasurer on the desirability of adopting international standards is ample recognition of the potential significance of international harmonisation to Australian practice. The principle of harmonisation has been supported by the Wallis Committee, the ASX, the Accounting Bodies and by the Government as reflected in the CLERP legislation.

The Group of 100, while supporting the principle of harmonisation and the role of IASC standards, has expressed concern about the dangers of "locking-in" to the timetable and agenda of an external body where Australia is not in control of the agenda and the flexibility to adapt to changing/evolving circumstances is constrained.

3. Current Concerns

The Group of 100 is concerned about the pace of the Australian harmonisation program and the potential for changes resulting from harmonisation with IASC standards being different from the requirements in the major capital markets, particularly the USA, prior to the IOSCO endorsement. There are also significant concerns that the US Securities and Exchange Commission (SEC) will delay its consideration of the IOSCO endorsement of IASC standards.

In the light of these concerns the Group of 100 believes that the conditions to be satisfied for the harmonisation of Australian standards with IASC standards should be specified.

In this respect the Group of 100 policy has been refined to the effect that:

• endorsement of IASC standards by IOSCO and the US SEC for cross-border listing and capital raising is a pre-requisite for final acceptance of IASC standards by Australia;

• the policy should be implemented by:
  (a) harmonising with IASC standards where the requirements are consistent United States Generally Accepted Accounting Principles (US GAAP);
  (b) deferring harmonisation with IASC standards where these standards are different from both Australian standards and practice and US GAAP until the IASC standards have been endorsed by IOSCO and the SEC.

4. How is Harmonisation Being Achieved?

The Group of 100 supported the imposition of a 3% levy on ASX listing fees for 2 years to finance the international harmonisation program of the AASB and has supported Government proposals in the CLERP legislation to:

• restructure the standard-setting arrangements by forming a Financial Reporting Council and a reconstituted AASB; and
• recognise and adapt to the increasing globalisation of capital markets including financial reporting requirements.

5. Why IASC Standards?

The Group of 100 supported harmonisation with IASC standards because this was seen as providing the best prospect for achieving the policy objective in a reasonable timeframe. This option was seen as achieving the objective while enabling Australia to manage and control the pace and nature of changes that would be required.

In reaching this position the Group of 100 considered other options including:

• the "re-badging" of IASC standards as Australian standards; and
• adopting US GAAP.

Re-badging IASC standards while superficially attractive would mean that the development of financial reporting in Australia would depend on the work program and priorities of the IASC. Other concerns were the diminished influence on IASC processes and the additional demands effective participation would place on Australian companies.

Adoption of US GAAP was seen as an attractive option for those companies whose securities are listed in the US or in jurisdictions where US GAAP is accepted. This approach was not adopted because there are many elements of US GAAP which were unlikely to be acceptable to Australian companies, for example, the ban on revaluations, and the detail and breadth of disclosures including an MD&A. In addition while the US standard-setter (FASB) may be de facto the international standard-setter the political dynamics, particularly for European companies, dictate otherwise.

Adoption of US requirements would:

• result in a lack of responsiveness by a national standard-setter (FASB) because its primary focus is on national issues and not issues put forward by companies from a different jurisdiction;
• result in concerns about the suitability of the FASB standards and other elements of US GAAP in an Australian environment and the problems of implementation, provision of guidance and interpretation in the local environment;
• lead to significant changes in Australian practice including goodwill and intangibles, pensions and other post-employment benefits, inventories, impairment of assets, the recognition and measurement of financial instruments, and the ban on revaluations.

6. Current Status

The IASC has completed the core set of standards identified in its agreement with IOSCO. IOSCO is now in the process of reviewing these standards to determine whether to endorse them and recommend to its members that they be adopted for cross-border capital raisings.

The AASB harmonisation program is presently running behind schedule. Eleven new or amended Australian standards have been issued as part of the program and a further 8-9 are expected to be issued before the end of the year. However, the AASB has not yet issued exposure drafts in respect of IASC standards dealing with superannuation liabilities, impairment of assets, intangible assets and the recognition and measurement of financial instruments. Harmonisation with these standards will be controversial for Australian companies because their requirements are significantly different from current Australian practice and, in some cases, US practice.

7. Further Information

Further information on the Group of 100 position on international harmonisation is located on the Group of 100 website www.group100.com.au

In addition please contact Bryce Denison – National President (08 9327 4276) or Geoff Harris – National Executive Co-ordinator (03 9524 3617) for further information or comments.

May 1999

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Last modified: 27 October 2006

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